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Thursday, June 13, 2013

DTCC Systemic Risk Survey

A client of mine asked today which systemic risks are likely to impact a clearing organisation, what are the top ten?Well, a couple of months ago the Depository Trust and Clearing Corporation (DTCC) ran a risk survey across the banking sector to identify key systemic risks which impact banks and clearing houses. Let's see what came out of the survey ...

Systemic Risk Findings

Over 100 operational risk teams were surveyed on the top systemic risks they believe threaten their organisations. Out of all those surveyed; 82% listed new regulation as the highest priority with disruption and cyber security coming in a second and third place respectively.

Some of the comments included: "There is a risk that firms spend too much of the their time and resources on new regulations and consequently take their eye off the ball" and at the same time, the "too big to fail" issue hasn't really been resolved since the credit crisis.

Perhaps one of the biggest concerns is that of new updates from IT departments. This risk is causing all sorts of unwanted cyber threats and operation teams are simply not prepared for massive outages from cyber risks in IT updates.

From a market perspective, the US bond market is now being seen by some as the "the next bubble". Our industry needs to be concerned when the FED withdraws from their quantitative easing program as there could be significant collapse in bond prices.

Causal Capital thoughts: If there is one thing operation teams need to focus on, it would be disruption and continuous operations. In the DTCC report; 82% of all people surveyed listed this concern and as the years go by, this risk always seems to feature at the top of the list.

1 comment:

The financial sector, which includes banks like JPMorgan and insurance companies like AIG, had the fastest earnings growth in the Standard & Poor’s 500 in 2012.[1] As of mid-2013, the sector comprised 16.8% of the S&P 500, almost double the percentage back in 2009. With the technology sector weighing in at 17.6 percent in 2013, the financial sector was poised to become the largest sector in the S&P 500. The traditional critique of the financial sector having a larger share of the economy is that the sector doesn’t “make” anything. As this argument is well-known, I want to ask, what about systemic risk? How is it being impacted as Wall Street takes up more and more of the U.S. economy? Furthermore, what is the impact on income inequality? Recommended: http://thewordenreport.blogspot.com/2013/07/wall-street-swallowing-up-more-of.html

Author

Martin Davies is a risk framework architect with strong domain knowledge across a diverse set of risk fraternities, a background in banking front-to-back and the ability to articulate business requirements into functional information technology concepts. He is focused on structured products for emerging markets and works with several tier one banks, regulators and brokerages across South East Asia.